UOB Kay Hian (UOBKH) on Tuesday (Jan 23) cut its target price on Wilmar International : F34 -2.7% by 11.8 per cent to S$3.35 from S$3.80. It maintained its &ldquo hold&rdquo recommendation on the counter.

 

The research team expects short-term negative sentiment on the agribusiness group&rsquo s share price, given its association with an alleged fraud case that is ongoing.

 

Wilmar&rsquo s China-listed subsidiary Yihai Kerry Arawana, denied allegations on Jan 12 that one of its business units was partially responsible for a fraud that led to a 5.2 billion yuan (S$973.3 million) loss for Anhui Whywin, a state-owned trading company.

 

The business unit, Guangzhou Yihai, was sued by the public prosecutor as an &ldquo accomplice&rdquo in contract fraud related to palm oil trades between Anhui Whywin and a privately owned counterparty, Yunnan Huijia Import and Export Co.

 

In a bourse filing on Jan 16, Wilmar said it does not condone any corrupt practices by any of its employees or officeholders. It also noted that its unit, Yihai Kerry, disagrees with the allegations directed at the company and will defend its right to protect the legal interests of the company and all shareholders.

 

Three days later, the group acknowledged in a response to Singapore Exchange queries that it should have released its statement earlier but it took the view that the matter was not significant in terms of potential liability for Guangzhou Yihai.

 

Wilmar also disclosed the Guangzhou Yihai&rsquo s contribution to the group&rsquo s financial position. For FY2022, Guangzhou Yihai accounted for 2.2 per cent of Wilmar&rsquo s revenue, 1.2 per cent of its net profit and 0.3 per cent of the group&rsquo s net assets.

 

UOBKH believes the matter would have minimal impact on Wilmar&rsquo s operations, noting that Guangzhou Yihai&rsquo s involvement was mainly as a transit storage provider. However, the matter may raise concerns about governance, despite having marginal financial impact.

 

After factoring in short-term negative sentiment, the research team now values Wilmar at 18 times earnings versus 25 times previously. It maintained its earnings forecast for FY2023 at US$1.1 billion, US$1.6 billion for FY2024 and US$2 billion for FY2025.

 

Its new target price of S$3.35 implied a potential upside of 2.4 per cent from Wilmar&rsquo s last trading price of S$3.27 as at the midday trading break on Tuesday. Shares of Wilmar were trading 1.8 per cent or S$0.06 lower at the time.

 

In view of the group&rsquo s H2 2023 results release on Feb 21, UOBKH expects Wilmar to beat its expectations.

 

It projects a core net profit of US$320 million to US$350 million for Q4. This will bring full-year core net profit estimates to between US$1.2 billion and US$1.23 billion, which is 6 to 8 per cent lower than consensus expectations.

 

&ldquo Its operations in China have shown some positive developments however, these improvements have not been substantial enough to offset the challenges stemming from the palm-refining business,&rdquo said UOBKH analysts Leow Huey Chuen and Jacquelyn Yow.

 

UOB Kay Hian (UOBKH) on Tuesday (Jan 23) cut its target price on Wilmar International : F34 -2.7% by 11.8 per cent to S$3.35 from S$3.80. It maintained its &ldquo hold&rdquo recommendation on the counter.

 

The research team expects short-term negative sentiment on the agribusiness group&rsquo s share price, given its association with an alleged fraud case that is ongoing.

 

Wilmar&rsquo s China-listed subsidiary Yihai Kerry Arawana, denied allegations on Jan 12 that one of its business units was partially responsible for a fraud that led to a 5.2 billion yuan (S$973.3 million) loss for Anhui Whywin, a state-owned trading company.

 

The business unit, Guangzhou Yihai, was sued by the public prosecutor as an &ldquo accomplice&rdquo in contract fraud related to palm oil trades between Anhui Whywin and a privately owned counterparty, Yunnan Huijia Import and Export Co.

 

In a bourse filing on Jan 16, Wilmar said it does not condone any corrupt practices by any of its employees or officeholders. It also noted that its unit, Yihai Kerry, disagrees with the allegations directed at the company and will defend its right to protect the legal interests of the company and all shareholders.

 

Three days later, the group acknowledged in a response to Singapore Exchange queries that it should have released its statement earlier but it took the view that the matter was not significant in terms of potential liability for Guangzhou Yihai.

 

Wilmar also disclosed the Guangzhou Yihai&rsquo s contribution to the group&rsquo s financial position. For FY2022, Guangzhou Yihai accounted for 2.2 per cent of Wilmar&rsquo s revenue, 1.2 per cent of its net profit and 0.3 per cent of the group&rsquo s net assets.

 

UOBKH believes the matter would have minimal impact on Wilmar&rsquo s operations, noting that Guangzhou Yihai&rsquo s involvement was mainly as a transit storage provider. However, the matter may raise concerns about governance, despite having marginal financial impact.

 

After factoring in short-term negative sentiment, the research team now values Wilmar at 18 times earnings versus 25 times previously. It maintained its earnings forecast for FY2023 at US$1.1 billion, US$1.6 billion for FY2024 and US$2 billion for FY2025.

 

Its new target price of S$3.35 implied a potential upside of 2.4 per cent from Wilmar&rsquo s last trading price of S$3.27 as at the midday trading break on Tuesday. Shares of Wilmar were trading 1.8 per cent or S$0.06 lower at the time.

 

In view of the group&rsquo s H2 2023 results release on Feb 21, UOBKH expects Wilmar to beat its expectations.

 

It projects a core net profit of US$320 million to US$350 million for Q4. This will bring full-year core net profit estimates to between US$1.2 billion and US$1.23 billion, which is 6 to 8 per cent lower than consensus expectations.

 

&ldquo Its operations in China have shown some positive developments however, these improvements have not been substantial enough to offset the challenges stemming from the palm-refining business,&rdquo said UOBKH analysts Leow Huey Chuen and Jacquelyn Yow.

 

A Chinese subsidiary of Asian food giant Wilmar International F34 0.00% has denied allegations by a city prosecution agency that one of its units was partially accountable for a trade fraud that led to a 5.2 billion yuan (US$725 million) loss for a state-owned company.

 

Wilmar&rsquo s Yihai Kerry Arawana Holdings Co said in an exchange filing Friday that one of its units had been sued in the eastern province of Anhui over its alleged role in loss-making palm oil trades between a state-owned trader and a privately owned counterparty. The company, one of China&rsquo s top food processors, said it wasn&rsquo t involved in the fraud.

 

Chinese commodity trading has been hit by a series of scandals in recent years, including cases where fraudulent financial documents and warehouse receipts were used as proof of collateral and credit. The filing by the unit of Singapore-listed Wilmar, co-founded by billionaire Kuok Khoon Hong, gives a rare insight into commodity trading in the world&rsquo s largest consumer.

 

The case focuses on state-owned trader Anhui Whywin International Co and its palm oil deals with private feed trader Yunnan Huijia Import & Export Co, according to the indictment cited in the filing. The prosecutor alleges that Huijia used forged documents to obtain palm oil deliveries from Whywin, without paying the full amounts, the indictment said. The prosecutor alleges that the Yihai Kerry unit was also involved in the case. 

 

Yihai Kerry said all transactions conducted by its Guangzhou unit in the trades were in compliance with normal practices and contractual agreements. The company did not obtain any improper benefit from Huijia, nor did it participate in the alleged fraud against Whywin, according to the filing.

 

A Chinese subsidiary of Asian food giant Wilmar International F34 0.00% has denied allegations by a city prosecution agency that one of its units was partially accountable for a trade fraud that led to a 5.2 billion yuan (US$725 million) loss for a state-owned company.

 

Wilmar&rsquo s Yihai Kerry Arawana Holdings Co said in an exchange filing Friday that one of its units had been sued in the eastern province of Anhui over its alleged role in loss-making palm oil trades between a state-owned trader and a privately owned counterparty. The company, one of China&rsquo s top food processors, said it wasn&rsquo t involved in the fraud.

 

Chinese commodity trading has been hit by a series of scandals in recent years, including cases where fraudulent financial documents and warehouse receipts were used as proof of collateral and credit. The filing by the unit of Singapore-listed Wilmar, co-founded by billionaire Kuok Khoon Hong, gives a rare insight into commodity trading in the world&rsquo s largest consumer.

 

The case focuses on state-owned trader Anhui Whywin International Co and its palm oil deals with private feed trader Yunnan Huijia Import & Export Co, according to the indictment cited in the filing. The prosecutor alleges that Huijia used forged documents to obtain palm oil deliveries from Whywin, without paying the full amounts, the indictment said. The prosecutor alleges that the Yihai Kerry unit was also involved in the case. 

 

Yihai Kerry said all transactions conducted by its Guangzhou unit in the trades were in compliance with normal practices and contractual agreements. The company did not obtain any improper benefit from Huijia, nor did it participate in the alleged fraud against Whywin, according to the filing.